Hungarian thread in the Polish scandal

This time we will make a trip to Poland, a country that in the last two weeks has been in political turmoil. It all began with some tapes released by Wprost, a news magazine, on which Marek Belka, governor of the Polish national bank, and Bartłomiej Sienkiewicz, minister of the interior, have a conversation in June 2013. During the conversation, one can hear Sienkiewicz asking Belka whether the central bank would help the government by cutting interest rates if Poland faced an economic meltdown before the elections this year. It appears that Belka says that “his condition would be the removal of the finance minister, Jacek Rostowki.” Rostowski was indeed removed in November 2013, but the national bank did not lower interest rates. Jaroslaw Kaczyński, the leader of the opposition Law and Justice party, said he would call for a no-confidence vote.

But what does all this have to do with Hungary? Well, as it turned out, Wprost had other tapes in its possession in which Polish politicians can be heard talking about international affairs. They certainly don’t mince words when talking about the United States, David Cameron, or, as it turned out, Viktor Orbán. The discussion is studded with such expletives and sexually explicit language that when I wanted to read the details of these conversations in IndexI was confronted with a page on which I had to attest that I was over eighteen. That will give you an idea.

But let’s first introduce you to the cast of characters. First and foremost, there is Radosław Sikorski, Poland’s foreign minister, who just threw his hat in the ring to replace Lady Catherine Ashton as high representative of the Union for foreign affairs and security policy and vice-president of the European Commission. On the released tape Sikorski has a conversation with Jacek Rostowski, the man who lost his job as finance minister last November. I have the feeling that after these revelations, Sikorski can forget about any position in Brussels. I even doubt that he will remain foreign minister of Poland for long.

Perhaps the  most damaging part of Sikorski’s remarks is what he had to say about U.S.-Polish relations, especially after Barack Obama’s visit to Poland and his promise of a billion dollars to beef up defenses in central and eastern Europe. Sikorski asserted that “the Polish-American alliance is worthless, even harmful, as it gives Poland a false sense of security. It’s bullsh..t.” Sikorski on the same tape allegedly said that the Polish people have the mentality of “murzyńkosć,” a derogatory and racially-loaded term meaning roughly “like a Negro.” “The problem in Poland is that we have very shallow pride and low self-esteem,” he added.

It turned out today when the whole tape was released by Wprost that Sikorski also has a very low opinion of David Cameron. The embarrassing details were  immediately reported by the British media. To get the full flavor of the conversation one should read an article published a few hours ago by The Guardian.

These are  juicy stories that are spreading rapidly in the international press. But other tapes were also released, one of which is about Hungary. Russian-Hungarian relations and the legal difficulties of Zsolt Hernádi, CEO of MOL, the Hungarian oil and gas company, were discussed by Dariusz Jacek Krawieć, CEO of PKN Orlen S.A., the Polish refinery, and Włodzimierz Karpiński, current minister of finance. It is that conversation that Index refuses to allow people under the age of eighteen to read. The upshot of it is that Orbán made a very bad deal and that Hungary by this loan agreement became a “vassal” of Russia.

And now on to Zsolt Hernádi, who is being accused in Croatia of paying €5 million to Ivo Sanader in exchange for a 48% stake in INA, the Croatian refinery company owned by the Croatian state. Soon enough formal charges were leveled against Hernádi and an international warrant was issued for his arrest. Hernádi was stuck in Hungary. Otherwise Interpol would have arrested him. It also seems that a former employee and a small investor in MOL sued Hernádi for damages she allegedly suffered as a result of the bribery charges leveled against Hernádi. In the first round, not terribly surprisingly, the court decided in his favor.

Zsolt Hernádi, a close ally and friend of Viktor Orbán / Source; maszol.ro

Zsolt Hernádi, a close ally and friend of Viktor Orbán / Source; maszol.ro

Jacek Krawiec adds spice to this story. Let me quote:

Listen, I’ll tell you a case which shows how different our situation is from that of the Hungarians. I visited Hernádi because he cannot leave Budapest. I asked him: “How many years will you get?” He was cool as a cucumber and smiled broadly. “Listen”–he said–“my lawyers found something. If in any one of the EU countries I am acquitted of these charges then all EU states must accept the verdict and so I can travel again in Europe.” I asked him: “Will this trial take place in Hungary?” He said, “Yes.” So, I told him that this might mean two or three years. His answer was: “There will be a verdict by April.”  Next to him sat a character, a legal director, a puffed-up character, Ábel somebody or other [actually Ábel Galácz, director in charge of sales]. Hernádi turned to him and said, “Ábel, tell Jacek who will bring the suit.” Ábel told me that it is his own wife! Do you understand? Imagine such a situation. The wife is the plaintiff, comes the acquittal, and all is taken care of. Can you imagine something like that happening in Poland?” To which Karpinski added: “This is what Kaczyński is dreaming of in Poland.”

The dates seem to support his story. In the middle of December Krawieć with a large delegation did come to Budapest to conduct business negotiations with MOL. It was on December 6 that MOL announced that a former MOL employee and small investor had sued Hernádi for bribery, corruption and damages resulting therefrom. By January 11, Népszabadság reported that something was fishy about this suit and learned from international legal experts that if Hernádi wins, Croatia must drop the charges and withdraw the warrant issued by Interpol against Hernádi.

So, the suit was a clever charade as even the right-wing press suspected. A reporter for Heti Válasz told Hernádi point blank that “allegedly you move Ilona Bánhegyi [the plaintiff] in order to get an acquittal and the appeal is just part of the ‘game.'” To which Hernádi answered, “I don’t wish on anyone that half an hour I spent waiting for the verdict. Who would place one’s fate in the hands of a judge in such an uncertain and politically charged case? I am only the incidental victim of this story.” Ilona Bánhegyi is appealing the case. I wonder what the judge of the appellate court will say once he reads this story in the newspapers.

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28 comments

  1. Foul language we already know from the Nixon tapes. I wonder why politicians seem to be so fond of it.

    But apart from the language, the Polish assessments seem pretty accurate, especially on Cameron. He really painted himself in a corner domestically, and his only continental ally seems to be a pariah, Orbán.

    It is also true that with Obama the US has the first post-war non-Atlantic president. That had to happen sometime – and it’s hurting the British especially. But because of that non-policy the USA lost a lot of goodwill and credibility in other areas as well – including Poland.

  2. Re Orban and the Russian deal…

    So the question is this: which of the ‘great’ interviewers of Hungarian media will seek out government personnel to answer this assessment of the Paks deal?
    I already know the answer: none.

  3. About the over the 18 details … The poles simply alleged, that Orban blew Putin when he was in Moscow to negotiate the Paks deal. Now the anti-Orban internet media unleashed a bonanza of internet jokes about Orban’s oral skills …

  4. @Petofi. It is not the media’s fault. They simply refuse to talk to them. There is, for example, ATV or Klubrádó. How often do you hear from Olga Kálmán that they invite members of the government who then refuse to appear on the station. Bolgár often begins his program: today we tried to talk with X, Y, and Z and they refused.

    For certain Fidesz events they don’t allow reporters of certain organs to be present.

  5. @tappanch I found your date confusing agh this time. (Maybe because I did not have my coffee yet.)

    The staggering thing is that while the Fidesz government and their minions fill the head of those who who let it with the untrue PR that “media freedom is all and well in Hungary, and Fidesz supports media freedom than no others before” they are systematically and slowly starve opposition media to death. If they don’t starve them, they simply kill them directly by taking away the way they can operate (Klubradio).

    Name Circulation Advertising revenue from government
    Nepszava (opposition paper) 14,241 € 94,842 (29 mill. Ft)
    Magyar Hirlap (govern. support) 7,435 € 1,327,763 (406 mil. Ft)

    Nepszabadsag (opposition paper) 45,051 € 297,616 (91 mil. Ft.)
    Magyar Nemzet (govern. support) 37,113 € 3,492,902 (1068 mil. Ft)

    Nepszabdasag has 6x times more readers as Magyar Hirlap but they receive 25% of the advertising from the government then Magyar Hirlap.
    Nepszava has almost twice the readership of Magyar Hirlap, the Hungarian government does not want those readers to be as informed as the readers of Magyar Hirlap?
    Nepszabadsag.

    So, either Fidesz admits that Nepszabadsag and Nepszava does a way better job to inform the public about the government than Magyar Nemzet and Magyar Hirlap, hence they do not need to place so much paid info into those papers OR the Fidesz government in fact does not support media freedom and decided to support with artificial revenue Magyar Nemzet and Magyar Hirlap.
    By the way, Magyar Nemzet’s circulation is this big with all the mandatory government orders, while Nepszabadsag is not ordered by the government.
    Now, if the readership numbers could be clear indication of popularity, it begs the question, how Fidesz was able to win any elections at all?

  6. @Eva

    “Not their fault..”

    Perhaps. But I still can’t forgive the media types who, when Orban declared that the Azeri matter was ‘over and done with’….had shut up, closed their tents, and quietly took their way home like the good little sheep that they are. (Of course, I’m a real stickler: I can’t forgive Olga’s bad manners in never addressing the lead-in news-reporter by his/her fist name. Boorish.)

  7. @Minusio “It is also true that with Obama the US has the first post-war non-Atlantic president.”

    What do you mean by this? What is a “non-Atlantic President”?

  8. @buddy

    After WW II, all American presidents until Obama showed an interest in good, constructive relations with Europe. The trans-Atlantic Alliance (NATO) was only the military side of it. There were many more ties in many other fields such as science, scholarships, regular consultations on economic and political matters – and then there was the “special relationship” with Britain. It also had to do with many government people and advisors having had European roots, diplomatic experience, etc.

    Under Obama that has changed. It is sadly true that the US doesn’t have much of a foreign policy to speak of now, and in spite of NSA the knowledge about regional situations and conflicts seems to be dwindling. A recent example was Kerry proclaiming that within nine month he would have hammered out a deal between Israel and the Palestinians. Everybody who knows the region, the persons involved and their principles could only but chuckle.

    A more recent example is how to treat the Ukraine crisis. Owing to lack of knowledge on the ground, the US unilaterally began with sanctions and threatening gestures. In earlier times, there would have been much more consultation and fine-tuning of measures to contain this conflict.

    George W. Bush wasn’t very popular in Europe for several reasons (Iraq war, homeland act and the concomitant erosion of civil liberties at the speed of lightning, Guantanamo, the secret camps and the renderings, etc.). Obama promised to restore the U.S. to the values it used to share with Europe (except for capital punishment). Well, he didn’t. So the list of shared values has become noticeably shorter and as a consequence the trans-Atlantic understanding has suffered what you can call at best “benign neglect”.

    Actually, I was expecting that for some time what with the influx of Hispanics and Asians over the last decades. So the future US focus will be more on the Americas and on Asia, i. e. trans-Pacific.

    Does that answer your question?

  9. @Eva,

    When the newscast lead-in asks says, “Hello, Olga”, she never responds by name; only say, “Hello”. Bad manners.

    But let’s get back to reporting: on the Azeri, Olga’s attempts at getting at the story rates a 1 out of 10. Why didn’t she interview some Turks on the alleged investments etc.? Or some Azeris regarding investment in Hungary? Nothing. Olga is almost as self-serving as the mutants on Echo and HirTV and the rest.

  10. Remark: Most people I know (including my humble self) cannot get RTL 2 on the cable. It is a recent, post-[media tax] decision on RTL’s part to rebroadcast the newsreel on RTL 1 around midnight.

  11. Since Eva did such a nice job of presenting to us in English new additional information about the Zsolt Hernádi Croatia affair I noticed something in the business news today that perked my interest. I just read that Pactera Technology International Ltd owned by a US investment group called the Blackstone Group is opening what is called an Offshore Development Center (ODC) in Hungary. Blackstone has evolved into one of the world’s largest private equity investment firms specializing in the dangerous practice of leveraged buyouts. The Blackstone Group, now is the largest owner of single-family rental homes in the USA, they believe the money to be made in the housing market lies in snapping up cheap homes in the cities where housing prices crashed most spectacularly. In general Blackstone is called a “predatory” investment group which Le Monde diplomatique also called among the “new vultures . . . with vast amounts of capital at their disposal and an enormous appetite for more.”

    The Hungarian Ministry of External Economy and Foreign Affairs indicated that Hungary has long-term plans for cooperation with Pactera, saying that the government would support the American company in raising the number of employees to the 800 and 1,000 range. I was curious as to why they picked Hungary, was it so many unemployed IT professionals in Hungary I could find no evidence for that. So why Hungary for a company that only thinks about profit and lots of it?

    Pactera has been a primarily China based operation which specialized in reducing operating expenses of firms in the more developed nations by leveraging offshore IT specialists in China at much lower costs. For example a software developer based in Beijing was being paid about $13,400 per year in 2009, salaries for software developers rose by an average of 7.5% per year in China. So by 2014 Pactera was looking at increased costs for its software developers now at around $17,700 a year.

    The average salary for a software developer in Hungary in 2012-2013 was around $23,180 a year with nowhere near the salary inflation factor of China. Overall in Hungary wages appear rigid, particularly base wages. Gross wages in the business sector continue are expected rise at a pace around 4% a year which is well below the Chinese level. Eventually if Chinese wages for IT professionals continue to increase they will surpass those paid in Hungary.

    Just as a point of reference software developers in the USA and Germany on average are making over $90,000 a year. Wages are currently becoming a new policy area in the European Union. The EU Treaty (Article 153, Section 5) does not grant the EU any powers to regulate wages, but the issue has been high on the European agenda ever since the onset of the euro crisis in 2009.

    The legal basis for intervention is the so-called “Euro-Plus Pact” or the Competitiveness Pact passed in March 2011, which interprets the crisis in Europe as one of inadequate economic competitiveness and identifies wages policy as the main tool for countries to redress the situation. A new European coordination process for implementing the Euro-Plus Pact has now been established in the form of the so-called “European Semester”. This involves regular monitoring of wage trends in all EU states and recommendations being made for national wages policy. If unit wage costs in individual countries rise above the maximum level set by the EU – currently around 3% annually – then these countries face the prospect of economic sanctions. Hungary did not agree to participate in the Pact primarily to protect taxation policy. None the less Hungary being part of what is called the German-Central European supply chain has its wage policy constrained by the Euro-Plus Pact.

    The EU effectively has become part of the enforcement process for relatively low wages in Hungary and it provides assurances that wage convergence with the more developed nations of the EU will not occur any time too soon. It isn’t therefore a surprise that a company owned by the notorious Blackstone Group wants in on Hungary’s relatively inexpensive IT workers.

  12. Istvan:”Blackstone has evolved into one of the world’s largest private equity investment firms specializing in the dangerous practice of leveraged buyouts. The Blackstone Group, now is the largest owner of single-family rental homes in the USA, they believe the money to be made in the housing market lies in snapping up cheap homes in the cities where housing prices crashed most spectacularly. In general Blackstone is called a “predatory” investment group which Le Monde diplomatique also called among the “new vultures . . . with vast amounts of capital at their disposal and an enormous appetite for more.” ”

    I question some of the above. Why would the leveraged buyouts be dangerous practice? It reminds me of all the similar propaganda about Romney during the last presidential elections.

    Although “predatory” sounds very negative, in the investment business it is generally not considered to be a negative term. It means that the “predator” firm has the financial strength to absorb the risks associated with the acquisition of a “prey” – or financially much weaker company.

    And finally, just as in the wilderness vultures have a positive role, by getting rid of dead animals. The same is true in the real estate world. It is much preferred that “vultures” buy up the low value properties (even if their goal is to make money eventually, after all what’s wrong with that?) ; the alternative is urban decay.

  13. Istvan: I was curious as to why they picked Hungary, was it so many unemployed IT professionals in Hungary I could find no evidence for that. So why Hungary for a company that only thinks about profit and lots of it?

    -Easy access to the EU (Hungary is becoming a hub for China), probably the Chinese (management?) will receive easier a visum in Hungary than any other EU country.
    -To operate from Hungary you reduce culture clashes, time zone differences.

    Other things that might have an impact:
    Hungarian government is willing to co-operate with China, Russia, etc.
    Tax reduction
    Under the contract with students they need to work for the government, and this qualify as government. So cheap labor.

  14. Why would the leveraged buyouts be dangerous practice?

    A leveraged buyout or LBO is a type of aggressive business practice whereby investors or a larger corporation utilizes borrowed funds (junk bonds, traditional bank loans, etc.) or debt to finance its acquisition. Both the assets of the acquiring corporation and acquired company function as a form of secured collateral in this type of business deal. Often times, a leveraged buyout does not involve much committed capital, as reflected by the high debt-to-equity ratio of the total purchase price (an average of 70% debt with 30% equity). In addition, any interest that accrues during the buyout will be compensated by the future cash flow of the acquired company.

    If the acquired company’s returns are less than the cost of the debt financing, then bankruptcy can result. In addition, the high-interest rates imposed by leveraged buyouts may be a challenge for companies whose cash-flow and sale of assets are insufficient. The result cannot only lead to a company’s bankruptcy but can also result in a poor line of credit for the buyout investors.

    An example of an unsuccessful leveraged buyout is the Federated Department Stores. The Federated Department Stores had many stores in the USA and tailored primarily to high-end retailers. However, they lacked an effective marketing strategy. In 1989, Robert Campeau, a Canadian financier, bought out Federated with the hope to make considerable changes. Only one year later, and only after some reforms, Federated could not keep up with the financial burdens of high interest payments and had to file bankruptcy for 258 stores.

  15. István, I don’t know much about these things, but a very good friend of mine does and she agrees with GDF. According to her, they serve a very important function. They often save companies that otherwise would go under.

  16. All I have to add to the topic of leveraged buyout (it’s not strictly a Hungarian topic, but I do think it applies to all countries based on capitalism) is that yes, there are dangerous, dangerous to the managements of poorly run companies (that’s why they try to save themselves with so called poison pills). Those who do the buyout generally do it with the intent of making these companies profitable. It doesn’t always work, but the targets of buyouts would most likely disappear anyway, this is their last chance. And yes, some of these buyouts do result in job losses (at least initially) and closings but the reason usually is that the level of employment and the size of the company are not supported by the company’s finances.

  17. The wife was not the plaintiff (“felperes”). She was the “pót-magánvádló”, as far as I know, whatever it is in English. This person can be anybody, any private individual. His relation to the Abel does not matter.

  18. (If it mattered, believe me, they could find someone else. Probably, they have more people than Abel and his wife.)

  19. Steven, it is not true that a pótmagánvádló can be anybody. He must be an “injured” person (sértett). The prosecutor’s office refused to bring charges against Hernádi and that’s why Hernádi and his lawyer came up with this particular solution. They needed an acquittal.

    As for her relation to an employee of MOL indeed doesn’t matter. In fact, it looks bad. Hernádi should have come up with a better solution.

    As for you second comment. It makes no sense. It looks as if Hernádi and Zamecsnik, the lawyer, couldn’t come up with another “body.” So, remained a former employee and the wife of a current employee of MOL.It does look bad. They could have arranged it better. This way it is very obvious.

  20. OK, to be honest, Croatia is a very corrupt country. However, in this particular case, the details of the charges against Hernadi were ridiculous. Based on these, the prosecutor’s office did nit start the case. (Even if it would have been good for Hernadi.)

    I would say, this is a factoid, a non-case, a nothing.

  21. Steve, Factoid? Then why didn’t Hernádi go to Croatia, stand before the court and clear his name. Instead he organized a phony trial in the hope that it will save him in Croatia.

    As for Croatia being a corrupt country, I would say that Hungarians ought to be careful about labeling others as corrupt. Hungary is the hotbed of corruption. Even on the governmental level. I don’t think that Croatia can possibly surpass her.

    One more thing about the concept of “pótmagánvádló.” It is used only in criminal cases and only when the prosecutors refuse to bring charges against the accused. So, basically, when I called Ilona Bánfalvi a plaintiff I was describing her status accurately. She is a plaintiff in a criminal case.

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